How does an irrevocable insurance trust work?
An insurance trust has three components. The grantor is the person creating the trust – that’s you. The trustee you select manages the trust. And the trust beneficiaries you name will receive the trust assets after you die. The trustee purchases an insurance policy, with you as the insured, and the trust as owner and (usually) beneficiary. When the insurance benefit is paid after your death, the trustee will collect the funds, make them available to pay estate taxes and/or other expenses (including debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits), and then distribute them to the trust beneficiaries as you have instructed.
Related Questions
- Why is it better to have an irrevocable life insurance trust purchase alife insurance policy on the donor, rather than have the heirs themselves own a permanent life insurance policy with the premium paid by the heirs with gifts by the now- living donor?
- What are the considerations in establishing an irrevocable trust for the benefit of ones children or grandchildren?
- How does an irrevocable insurance trust work?
